The panel which submitted its report to the Union Finance Minister here on Thursday has suggested scrapping of Special Category status accorded by the National Development Council (NDC) to 11 states, including seven northeastern states, Sikkim, Jammu and Kashmir, Himachal Pradesh and Uttarakhand based criteria of remoteness, hilly terrain, international border and some social development indices. Instead it has suggested that the devolution of central assistance should be based on MDI of backwardness.

Accordingly, the panel has identified Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Meghalaya, Odisha, Rajasthan and Uttar Pradesh as the Least Developed States to get the maximum benefit.

Bihar, Odisha, Jharkhand, Rajasthan among other have long been demanding Special Category status.

However the scrapping of Special Category Status accorded to 11 states will need the approval of the NDC which consists of chief ministers of states

The six-member panel headed by the former Chief Economic Adviser in the Finance Ministry and the incumbent Governor of Reserve Bank of India, Raghuram Rajan has proposed a general method for allocating funds from the Centre to the States based on both a State’s development needs as well as its development performance. The panel has recommended that each State may get a fixed basic allocation of 0.3% of overall funds, to which will be added its share stemming from need and performance to get its overall share.

The Raghuram Rajan panel has recommended that States that score 0.6 and above on the Index may be classified as “Least Developed”; States that score below 0.6 and above 0.4 may be classified as “Less Developed”; and States that score below 0.4 may be classified as “Relatively Developed”. States that score below 0.6 and above 0.4 may be classified as “Less Developed”; and States that score below 0.4 may be classified as “Relatively Developed”.

The panel has observed that the demand for funds and special attention of different States will be more than adequately met by the twin recommendations of the basic allocation of 0.3% of overall funds to each State and the categorization of States that score 0.6 and above as “Least Developed” States. According to the Committee, these two recommendations, along with the allocation methodology, effectively subsume what is now “Special Category”.

The Department of Economic Affairs in the Union Finance Ministry has been asked to examine the report and take necessary action, P Chidambaram said.

He further informed that the Prime Minister Dr Manmohan Singh has also directed that the recommendations of the Committee may be examined and necessary action in this behalf may be taken.